From an economic perspective, no country better represents the Olympic motto—“faster, higher, stronger”—than China. During the last 30 years of its opening to the outside world and economic liberalization, China has grown to be the world’s third-largest trading nation and fourth-largest economy.

More important, the increase in economic freedom has widened the range of personal choices and given millions of people the opportunity to leave the state sector and “jump into the sea of private enterprise.”

Progress Continues

During the Cultural Revolution, central planning dominated, capitalism was a crime, and Mao Zedong called upon people to “strike hard against the slightest sign of private ownership.” Today most prices are set by market demand and supply, capitalists can join the Chinese Communist Party, and the PRC constitution proclaims, “The lawful private property of citizens is inviolable.”

The Property Law, enacted in 2007, gives further protection to the private sector and to individual property rights. That legislation reflects the political influence of the growing middle class and private entrepreneurs who have a large stake in continued economic liberalization, which has allowed them a lifestyle few would have dreamed of just a short time ago. Millions of people now enjoy the privacy of their own homes and cars, the freedom to travel, and the enormous benefits of cell phones and the Internet.

While China would win an Olympic gold medal for its economic performance since 1978, it would clearly not be a medalist in the quest for personal freedom. But China also would not be in last place.

In 1995, Chinese journalist Jianying Zha wrote in her book China Pop, “The economic reforms have created new opportunities, new dreams and to some extent a new atmosphere and new mindsets. . . . There is a growing sense of increased space for personal freedom.” Many would agree.

Seeing the Big Picture

It would be foolish to focus only on China’s flaws without recognizing the progress made in improving people’s lives—progress due to the removal of restrictions on economic and personal choices, rather than to central planning. In particular, globalization and the information revolution have played crucial roles in China’s development. Without the benefits of trade, China would still be poor.

Protectionism Is a Poor Tool

The slow pace of political reform and the violation of human rights should be of serious concern, but using trade sanctions against China to promote human rights would do the opposite. Unlike trade, protectionism denies individuals the freedom to expand their effective alternatives, thus limiting their choices. Sanctions would fuel the flames of economic nationalism, harm U.S. consumers, and embolden hardliners in Beijing.

It makes no sense to use such a blunt instrument in an attempt to “advance” human rights in China when trade itself is an important human right. Instead, the United States can best help the Chinese people by continuing its policy of engagement and avoiding destructive protectionism.

Trade Has Had a Positive Effect

Trade increases the wealth of nations and reduces the risk of conflict. Hong Kong, the world’s freest economy, learned long ago the benefits of international trade and the rule of law. Its development strategy—“small government, big market”—has clearly influenced the Mainland, and the “freedom virus” is spreading.

The challenge for China’s new generation of leaders is to continue on the path of “peaceful development” and not let politics get in the way of the market. If China is to prosper and become the world’s largest economy, Beijing needs to allow market socialism to wither away and market liberalism to flourish. That transformation would require a transparent and just legal system that fully protects people’s rights to life, liberty and property.

Dialogue Is Key

To help China along that path, the United States should continue the Strategic Economic Dialogue initiated by Presidents Bush and Hu Jintao. Two other positive steps would be to end the discrimination against China in antidumping cases by recognizing the PRC as a market economy, and admit China to the G-8 as a normal rising power.

Those acts of friendship would reassure Beijing that the United States welcomes China’s rise and does not view the Middle Kingdom as an inevitable enemy. At the same time, we should not ignore the human rights violations that do occur, and use diplomatic pressure to help move China toward a legitimate rule of law.

Determining the Direction

While tourists admire the compelling architecture in Beijing and other cities, they should not forget that what counts in the long run is not the physical infrastructure but the formal and informal institutions that limit government power and enhance freedom.

Ultimately, the Chinese people must determine the form of their government and other institutions, but the United States can help by upholding the same market-liberal principles it wants China to adopt.

Finally, by adhering to a free-trade agenda, the U.S. government can show the Chinese people that Americans practice what they preach.

This article appeared in Impact Analysis, September-October 2008, and Far Eastern Economic Review on August 11, 2008.

James A. Dorn is Vice President for Monetary Studies and Senior Fellow at the Cato Institute. His articles have appeared in The Wall Street Journal, Financial Times and South China Morning Post. He has testified before the U.S.-China Security Review Commission and the Congressional-Executive Commission on China.